3-Day Money Rate Set To Take Off
MONEY MARKET REPORT
Interest rates in the 3-day inter-bank call money market are likely to shoot up today to more than 30 per cent.
"If call money rates increase over 30 per cent, there would be nothing stopping it from breaching any level," quipped a dealer.
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Aggressive open market operations of the apex bank have resulted in a shortage of liquidity and the remedial efforts taken by RBI have been unsuccessful. Added to this is the burden of having to cover products for three days.
"Prior to this banks have not been covering their cash reserve requirements completely as they have been hoping that overnight rates would cool down over time. However, now with Saturday being a holiday everybody is rushing in to cover their requisite levels," said a money market dealer in a private sector bank.
Dealers said the 3-day call money rates were expected to open in the vicinity of 25 per cent and could increase to well over 30 per cent levels as demand was likely to remain strong throughout the day.
Yesterday most banks abstained from entering the overnight market in the morning as they expected them to fall down by the end of the day. However, with demand in the latter stages outdoing supply of funds by a long shot, overnight rates shot up to 20-22 per cent and later closed in the range of 22-25 per cent.
Security prices too witnessed a fall after rising in the initial stages of trading. According to dealers, prices of securities fell by nearly 20-25 paise from their intraday high at the long end.
"Trading interest was anyway low and with call money rates overshooting, sellers became active in the market. Some players were even willing to sell the 12 per cent 2008 government security at any bid in the latter stages of the day," said a market dealer.
Government securities are expected to witness a falling prices today as sentiments are likely to be low with extremely high call money rates and tight liquidity.
The wholesale debt market of the National Stock Exchange (NSE) witnessed a volume of Rs 1,288.34 crore on account of 173 trades. The most traded stock on the exchange was the 11.83 per cent 2014 gilt which was traded for Rs 240.42 crore at a weighted yield of 10.84 per cent.
The price of the security fell by 75 paise from its intraday high of Rs 107.75 to Rs 107 before rising marginally to Rs 107.06 at close.
The 12 per cent 2008 gilt was traded for Rs 235 crore at a weighted yield of 10.36 per cent. Price of the security fell from Rs 108.95 to Rs 108.70 during the day.